The Employee Benefits Security Administration (the "EBSA") has added to it's website a Fact Sheet on the definition, for purposes of ERISA, of the term "Fiduciary". The definition in the Fact Sheet reflects certain changes the EBSA is proposing to make to the long-standing definition of the term.
According to the Fact Sheet, ERISA defines a "fiduciary" to include (among others) anyone who gives investment advice for a fee or other compensation with respect to any moneys or other property of a plan, or has any authority or responsibility to do so. In 1975, a 5-part regulatory test for "investment advice" was issued as a regulation. This test gave a very narrow meaning to this term. Under the test, for a person to be considered a fiduciary by reason of giving investment advice, that person must: (1) make recommendations on investing in, purchasing or selling securities or other property, or give advice as to their value (2) on a regular basis (3) pursuant to a mutual understanding that the advice (4) will serve as a primary basis for investment decisions, and (5) will be individualized to the particular needs of the plan.
The Fact Sheet says, in effect, that significant changes have been made in the retirement plan world since 1975. Thus, changes to the definition of the term "fiduciary" are warranted. Under the EBSA's proposed changes, a person gives investment advice-and thereby becomes a fiduciary- if he or she:
(a) for a direct or indirect fee:
--provides the requisite type of advice:
--provides appraisals or fairness opinions about the value of securities or other property;
--makes recommendations on investing in, purchasing, holding, or selling securities; or
--makes recommendations as to the management of securities or other property, and
(b) meets one of the following conditions:
-- represents to a plan, participant or beneficiary that the person is acting as an ERISA fiduciary;
-- is already a fiduciary to the plan by virtue of having any control over the management or disposition of plan assets, or by having discretionary authority over the administration of the plan;
--is an investment adviser under the Investment Advisers Act of 1940; or
--provides the advice pursuant to an agreement or understanding that the advice may be considered in connection with investment or management decisions with respect to plan assets and will be individualized to the needs of the plan.
Notwithstanding the above, the following persons should not be treated as a fiduciary:
(i) persons who do not represent themselves to be fiduciaries, and who make it clear to the plan that they are acting for a purchaser/ seller on the opposite side of the transaction from the plan rather than providing impartial advice.
(ii) employers who provide general financial/ investment information, such as recommendations on asset allocation to 401(k) participants under existing EBSA guidance on investment education.
(iii) persons who market investment option platforms to 401(k) plan fiduciaries on a non-individualized basis and disclose in writing that they are not providing impartial advice.
(iv) appraisers who provide investment values to plans to use only for reporting their assets to the EBSA and IRS.